Vikaas M Sachdeva, Chief Executive Officer, Emkay Investment Managers Ltd, says that we are on course in the next few quarters, to have SIP inflows of $ 3 billion per month from retail investors, not to mention the money being invested with Alternate businesses like ours from savvy investors.

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With a track record spanning two decades, Vikaas has considerable experience in the Indian financial services space. After a brief stint in investment banking, he joined Birla Sun Life International AMC Ltd. in 1995, as one of its founder members.

In an interview to Zeebiz's Kshitij Anand, Jain said that there is still a lot of steam left in the small and midcap indices going forward. That being said -- high-quality stocks from this space are likely to do even better than the broader indices

Edited Excerpts -

Q) What are your views on broader markets? Small & midcaps outperformed benchmark indices by a wide margin. How do they stack up valuation-wise compared to historical averages?

A) If one looks at longer timeframes of say 5-8 years, small and mid-cap indices have traditionally outperformed broad market indices like the Nifty50 and Nifty500 by anything around 400 to 600 bps.

That is typically the risk-to-reward premium one expects from the markets, despite the volatility being par for the course

However, if one looks at the 3-year rolling returns in terms of equity indices as on June 2021 (Source: Emkay Emerging Stars Series IV presentation booklet), one finds that despite the recent run up in small and midcap indices, they are still delivering ballpark similar returns to the broader indices.

Ergo, there is still a lot of steam left in the small and midcap indices going forward.

That being said -- high-quality stocks from this space are likely to do even better than the broader indices

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Q) You have seen many bull and bear cycles in your career. Do you think this bull market is different and what is the kind of strategy you are following for your fund?

A) In the “holy trinity” of picking up multi bagger stocks viz Management, Business and Valuation, it is usually valuations that attract the maximum attention due to swings in investor sentiments.

In reality, high-quality management typically builds resilient businesses which would then attract premium valuations.

Our proprietary “Emkay Quality” model (E-Qual) has ensured that we remain focused on what really matters – that is investing in committed, capable and visionary managements.

This has enabled us to ride the volatility across business cycles and swings in markets with equanimity. We continue to do the same currently as well.

In the process, we have not just delivered consistent returns, but also are satisfied with the fact that there has never been a stock in our portfolio that we have been embarrassed about.

Q) Should one tweak the asset construction of their portfolio especially after 27-28% rally seen in benchmark indices? Should one go underweight on equity and increase weightage in debt?

A) Asset allocation is always advisable and should be at regular intervals, rather than at different points of market rallies.

Currently, other asset classes like fixed income, gold, and real estate are in the process of stabilizing and merit attention.

One must remember that the markets reflect the state of the overall economy. They might tend to go overboard or underwhelm you at times.

However, in a country like ours where there is strong economic momentum visible, it does not make sense to be underweight on equity at any given point of time

Q) Which sectors are likely to lead the next leg of the rally and why?

A) The current rally is reflecting the overall ebullience in the economy and the starting of unleashing of animal spirits.

Instead of trying to second guess the rally from a sectoral point of view, I would rather focus on staying the course with good quality management and businesses and add to them each time there is a sector rotation taking place.

From a 1-2 year perspective, demand seems to be building up in the real estate, auto and BFSI seem to be attractive

Q) What do you make of the price action on D-Street – Sensex touched 60,000 while the Nifty50 inched closer towards 18000 levels. Time to be cautious or just ride the momentum?

A) Traditionally, we have always been seen as an “underachieving economy” despite the abundant presence of natural and human resources.

Countries a fraction of our size have outstripped growth due to a confluence of factors driven by market dynamics and political will.

I believe that the pieces are starting to fall in place for the Indian economy as well. From local far-reaching reforms to a pragmatic outreach to global investors, investors have turned far more sanguine about India than ever before.

The fact that “China + 1” is playing out decisively is adding to the zeitgeist of quiet confidence around.

Personally, I am of the view that one should size one’s bets upwards on Indian equities for benefits over the longer term. Corrections are part of the journey, which most investors who have sat out the current rally are slowly realizing…

Q) One good thing which has come out in the last 12-15 months is the fact that reliance on foreign investors to push the market higher has come down. The Indian market has remained resilient which is a good thing. What are your view?

A) The asset management business - led by Mutual funds and now increasingly by alternates – is displaying the compounding of efforts gone in to educate the Indian investors for the last 3 odd decades.

Even today, only 3.7% of our population invests in equity markets (Source: Swastika.co) as compared to 12.7% in China and 55% in the USA.

I believe that we are on course in the next few quarters, to have SIP inflows of $ 3 billion per month from retail investors, not to mention the money being invested with Alternate businesses like ours from savvy investors. Things look very encouraging indeed

Q) Looking at the energy crisis especially in China and Europe – do you think investors can put some part of their portfolio in energy and power (PSU) stocks that are still available at reasonable valuations?

A) The basic texture of the energy and power industry is undergoing a metamorphosis currently.

Each country globally is re-looking at their portfolios from an immediate as well as long term point of view and aligning their strategies to include renewables and alternate power generation sources.

It is always advisable to see a clear trend emerging rather than trying to second guess a state of flux.

I am of the view that over the next 2-3 quarters, there would be a clearer scenario emerging and one can then invest for the longer term, rather than trying to second guess the plans of companies trying to adapt themselves to newer realities

Q) The IPO pipeline remain strong for October-November as some 30 companies are collectively looking to raise about Rs 45000 cr. Which big companies are on your radar, and your views on the IPO action we have seen so far in 2021?

A) A healthy secondary market always encourages entrepreneurs and P/E players to share their spoils with the investors at large.

A lot of interesting companies are likely to go public, quite a few of them being “internet enabled/ enhanced” companies. This is an exciting space to watch out for and there is an abundance of high-quality offerings on the plate

(Disclaimer: The views/suggestions/advices expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)